dcsimg
RealTime IT News

E-Commerce - The Next Chapter

A new industry report contends that traditional brick-and-mortar retailers are best positioned to master the economics of online retailing as e-commerce enters a new phase.

And there appears to be plenty of empirical evidence to support that claim, as witness the spectacular growth of operations such as Kmart's BlueLight.com, and the spectacular failure of operations like the bankrupt pure-play eToys.

In a study entitled "The Next Chapter in Business-to-Consumer E-Commerce: Advantage Incumbent," the Boston Consulting Group posits that brick-and-mortar retailers have a golden opportunity to use their inherent advantages to grow customer share dramatically.

"Online retailing is entering a new phase in its evolution," said Michael Silverstein, a senior vice president and head of BCG's Consumer practice. "What was once an industry characterized by entrepreneurial dot-coms, targeting the discretionary spending of the Internet-savvy consumer, is fast becoming the domain of traditional retailers, selling both necessities and discretionary items to the broader population."

Amazon.com to the contrary, the empirical evidence is everywhere, and perhaps is nowhere more apparent than at BlueLight.com, which was founded in December of 1999 and grew like crazy via a free ISP offer.

In fact, Kmart has a big press conference scheduled for next Monday in New York City, and the invite for the launch of a retail initiative mentions its Jaclyn Smith and Kathy Ireland clothing lines. The Web site, which already sells everything from electronics to flowers, has a teaser saying that clothing sales are coming soon and "We're adding a larger selection of new looks and big-name brands - keep checking back over the next few weeks."

Clearly these guys "get it," and BlueLight's ability to let customers make returns at their local real-world Kmart store is a distinct advantage.

The BCG study says that sales in the nine leading online categories have the potential to grow from $34 billion in 2000 to $168 billion by 2005. Most of the growth will take place in the leisure travel, grocery and clothing categories, the report says.

"Consumers are now migrating to the big brands with an online capability," Silverstein said. "While they want the convenience of 'always available' shopping, they are also demanding higher levels of performance from retailers in all aspects of the online shopping experience. The next chapter in online retailing will be about the revenge of the sophisticated incumbent."

Interestingly, the study goes on to say that by and large, the economics of online retailing "are not working well." In most categories, margins are simply insufficient to cover high fulfillment and marketing costs. Collectively only catalogers have been able to generate positive contribution margins after marketing costs are factored in, the study says.

Catalog marketers "enjoy the advantages of established brands, existing infrastructure, and extensive experience in selling to customers at a distance," said Peter Stanger, vice president and head of BCG's B-to-C topic area in North America. "They know they will succeed if they focus on the best customers, rather than allocate huge sums to attract customers whose purchases won't justify their acquisition costs."

What about pure-plays? The study says that only pure-play retailers that have achieved the scale needed to reduce their total systems costs and build competitive advantages in key areas such as brand strength, procurement, fulfillment, customer acquisition, and service will be success stories. Amazon is currently the only such company to have crossed this threshold in the book category. And "it has yet to demonstrate long term success

The report was based primarily on a quantitative survey of 2,876 U.S. Internet purchasers conducted during the fourth quarter of 2000.



×
We have made updates to our Privacy Policy to reflect the implementation of the General Data Protection Regulation.